What is the law of diminishing of marginal utility?

Answer 1

The Law of Diminishing Marginal UtilityThe law of diminishing marginal utility can be logically deduced from the axiom of human action. To show this, let us start with some remarks on utility.

Utility is a subjective concept. It denotes "satisfaction" (or "happiness" or "contentment"). It rises if and when an individual increases his or her state of satisfaction. Conversely, if and when someone considers himself in a worse state of affairs, his utility decreases.

What is more, utility is an ordinal concept, meaning that utility cannot be measured in terms of higher or lower utility from the viewpoint of an individual; and changes in utility among different people cannot be measured. All one can say is that utility is higher or lower from the viewpoint of an individual.

Rothbard explained why this is:

In order for any measurement to be possible, there must be an eternally fixed and objectively given unit with which other units may be compared. There is no such objective unit in the field of human valuation. The individual must determine subjectively for himself whether he is better or worse off as a result of any change.[2]

Marginal utility means the utility of increments of goods; it means the utility of enjoying an additional good. Marginal utility does not mean increments of utility - which would imply measurability of utility.[3] So what does the law of diminishing marginal utility say?

The law says, first, that the marginal utility of each (homogenous) unit decreases as the supply of units increases(and vice versa); second, that the marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit (and vice versa). The first law denotes the law of diminishing marginal utility, the second law the law of increasing total utility.

These two dimensions of the law of diminishing marginal utility follow directly from the axiom of human action; they can be logically deduced from it, and they do not in any way depend on psychology or any behavioral assumption. This will be shown in what follows.by economist Aamir suhail Maitlo for futher info:email address :aamirsuhail026@gmail.com

Answer 2

In its most general form, the "law" of diminishing marginal utility states that, in the absence of "tipping points", as increasing amounts of a good or of a service are consumed, past some point of consumption the utility (usefulness) of successive increases drops. This is follows from an assumption that economic actors are rational, and therefore put each available amount to the best possible use, so that (on the assumption that there is no tipping point) the next available amount must then go to a less important use.

In mainstream economics, it is often assumed that utility can be quantified. In that case, the marginal utility would be an actual arithmetic difference. To get the marginal utility of the nth unit of a good or service, one could subtract the total utility without that unit from the totalutility with that unit.

In that case, the "law" of diminishing marginal utilitywould imply that these arithmetic differences became ever smaller quantities. Here's a purely hypothetical example:

Quantity of Good . Total Utility . Marginal Utility

... ... ... ... 0 ... ... ... ... ... ... ... 0 ... ... ... ... ... ... undefined

... ... ... ... 1 ... ... ... ... ... ... . 10 ... ... ... ... ... ... 10

... ... ... ... 2 ... ... ... ... ... ... . 19... ... ... ... ... ... ... 9

... ... ... ... 3 ... ... ... ... ... ... . 27... ... ... ... ... ... ... 8

... ... ... ... 4 ... ... ... ... ... ... . 34... ... ... ... ... ... ... 7

... ... ... ... 5 ... ... ... ... ... ... . 40... ... ... ... ... ... ... 6

... ... ... ... 6 ... ... ... ... ... ... . 45... ... ... ... ... ... ... 5

If marginal utility diminishes asymptotically, as in this hypothetical sequence

MU = 16 , 8 , 4 , 2 , 1 , .5 , .25 , .125 , ...

then total utility may always grow (though its growth may become very slow). On the other hand, when there can be "too much of a good thing", so that a good becomes a bad when there's too much of it, then marginal utility can become negative, and total utility can actually shrink with additional units. Continuing the first hypothetical example:

Quantity of Good . Total Utility . Marginal Utility

... ... ... ... 5 ... ... ... ... ... ... ... 40... ... ... ... ... ... ... 6

... ... ... ... 6 ... ... ... ... ... ... ... 45... ... ... ... ... ... ... 5

... ... ... ... 7 ... ... ... ... ... ... ... 49... ... ... ... ... ... ... 4

... ... ... ... 8 ... ... ... ... ... ... ... 52... ... ... ... ... ... ... 3

... ... ... ... 9 ... ... ... ... ... ... ... 54... ... ... ... ... ... ... 2

... ... ... . 10 ... ... ... ... ... ... ... 55... ... ... ... ... ... ... 1

... ... ... . 11 ... ... ... ... ... ... ... 55... ... ... ... ... ... ... 0

... ... ... . 12 ... ... ... ... ... ... ... 54... ... ... ... ... ... -1

... ... ... . 13 ... ... ... ... ... ... ... 52... ... ... ... ... .... -2

... ... ... . 14 ... ... ... ... ... ... ... 49... ... ... ... ... ... -3
Law states that for any good or service, the marginal utility of that good or service decreases as the quantity of the good increases, ceteris paribus. In other words, total utility increases more and more slowly as the quantity consumed increases.